Senior manager at Trident Tax, Richard Wynne, looked at the practical implications of handling overseas property owners for compliance and tax and suggested alternative deal structures for tax efficiency.
 
Section 1 – Overview of the Register of Overseas Entities (ROE)
 

• Economic Crime (Transparency and Enforcement) Act 2022
  • Created a register of UK property held by non-UK entities
  • Requirement to register enforced with potential financial and custodial penalties for relevant entities (not receivers handling the property but could cause complications)
  • Legislation came into effect in 2022, a year early, due to Russian Ukraine invasion – with the result that guidance is quite lacking
• Overseas Entity – means an overseas or non-UK company that owns UK land or property. It does not include individuals but can include Trust Companies.
• UK property – a “qualifying estate” is essentially a freehold interest in the property or a leasehold which lasts for more than seven years.
• Registration must be done by the Overseas Entity
• Timings - the Overseas Entity must report on:

• Registration
• de-registration
• annual renewal
• there was a deadline to have registered by the 31st of January this year Going forward an Overseas Entity will not be able to acquire land until it has registered

• The register is handled by Companies House but with significant interaction with the Land Registry
• Date of registration with the Land Registry – differs within the UK; England and Wales, 1 Jan 1999, Scotland Dec 2014 and N Ireland 2022.
   

 
Questions for consideration – may require clarification or legal advice

• What restrictions are posed on the Land Registry?
• What are the implications for the receiver if there's a charge against a property that's owned by an overseas entity that has failed to register?
• What are the practical implications for you of proceeding if you discover non-compliance? Should you ask an overseas Entity to rectify before you proceed with the sale?
• Do you need to report that non-compliance?
• Will lawyers want to take instructions if there has been non-compliance?
• What happens in situations where there may be a fixed and floating charge secured on business assets which include property?

Ryan highlighted some important carve-outs in the restrictions, including where: “the disposition is made in the exercise of a power of sale or a leasing conferred in the proprietor of a registered charge or receiver appointed by such a proprietor or if the disposition is made by a specified insolvency practitioner in specified circumstances.”
He said, while this indicated it would be fine for an RPR to deal with such property, where the sale was an appointed receiver and it was known there was a registered charge, it did not answer all the questions.
 
 
Section 2 – Tax issues for Non-Resident owners of UK land and property
 
Facts

• Sale of UK property triggers possible Non-Resident Capital Gains Tax charge:
  • Residential property from April 2015
  • Commercial property and shares in property-rich companies from April 2019
  • A “property-rich company” is any company with gross assets that are 75% or more attributable to UK real estate
• Normal corporation tax deadline if company already within the charge to corporation tax but, if not, payment deadline can be as soon as 3 months and 14 days of date of disposal
• 60-day reporting and payment deadline for individuals

 
 
Section 3 – Is there a different way to structure a deal?
 
Ryan advised giving thought to tax implications when structuring a deal around the sale of the property as significant savings could be made by considering alternative routes.
 
Case study
 
Scenario

• Client was owed £5m by property developer, secured on property project
• The project was in an SPV. The developer had hoped to make £6m to £7m but property was worth only slightly above £5m
• Loan was coming to end of its term
• Client was offered the property in settlement of the debt – what shoud he do?  

Solution

• The problem in this case, from a tax perspective, was stamp duty land tax.
• The developer was struggling to find a buyer to pay the £5m and needed to repay the debt.
• Transferring the property and repayment of the debt was a valuable consideration but there would incur a stamp duty land tax charge as high as £660,000, meaning the lender would recover less than £4.34m of the original loan.
• An alternative here was for the lender to buy the company, worth slightly more than the debt based on the valuation of the property (probably worth less in a forced sale).
• The client paid a normal amount for the shares, incurring a small amount of stamp duty on the proceeds of sale for those shares.
• The client was then in a position with options:
• generate rental income from the property to replace the interest income he would otherwise have made
• wait for a buyer to recover a better price for the property
• in future, if he wants, he can sell the shares in the company rather than selling the property itself, which would attract stamp duty rather than stamp duty and tax charge, bringing significant tax savings.